Equities
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Energy Equipment & Services
8 May 2019
Offshore rigs, operator M&A and US onshore
If you can’t sell it … list it? Either way rigs are here to stay for Saipem
On its Q1 earnings call, Saipem shared details of its anticipated plans for its drilling rig fleets,
primarily its offshore fleet comprising of drillships, semi submersibles and jack-ups. Unable to
realise its desired valuation via a straight sale, the company is now exploring options to
potentially pair its assets with a third party to give a joint entity more scale in the current market.
Management stated on the earnings call that it believe this would open up options, including a
potential market offering of some sort. For reference, we value SPM’s offshore drilling assets at
USD1.45bn or EUR1.275bn based on our Rig Market Value approach.
One can argue that ‘divesting at the bottom’ would not result in value realisation for the
company and therefore a different approach is logical. However, Saipem’s narrative has
changed slightly to one of capturing upside from exposure to offshore rig rate improvements, in
our view implying that the offshore rigs are here to stay for some time.
More broadly, and through our coverage of offshore drilling names, we see value in the sector
at current valuations, despite the slow recovery in utilisation and day-rates (see Offshore
Drilling: Deep value in deepwater, 25 February 2019).
Operator M&A – will there be a fall out for offshore exploration and LNG?
The currently ongoing tug of war between Chevron (CVX US, CMP USD117.27, Hold, TP
USD133) and Occidental (not rated) to acquire the US independent oil & gas producer
Anadarko may have implications for the M&A target’s offshore and LNG project pipeline.
In particular Anadarko’s proposed 13mmtpa Mozambique LNG project (Golfinho), which is at an
advanced stage, was expected to reach FID in Q2 2019, prior to the bidding war. TechnipFMC
was reported to have been the frontrunner to win a c.USD1bn offshore subsea system
equipment contract, whilst Saipem (as part of a 3 company consortium) had been selected to
construct the two liquefaction trains (Upstream 7 February 2019).
In our view, the project would serve as a more natural strategic fit at Chevron compared to
Occidental given the former’s existing LNG portfolio and experience in delivering projects of
such scale (notwithstanding cost overruns in Australian developments). Furthermore, Chevron
has indicated that it would seek to not delay decision making and progress on the project if it is
successful in its bid to acquire Anadarko (Upstream, 12 April 2019).
However on 5
th
May it was announced that should Occidental be successful in its bid for
Anadarko, then the target company’s ex-US assets (including the Mozambique LNG project)
would be sold to Total SA (FP FP, CMP EUR49.17, Buy, TP EUR57.3) in a USD8.8bn deal.
Total has a significant LNG business with an establish track record of delivering and operating
just projects, including the almost complete Yamal LNG project being built by TechnipFMC.
While the winning takeover proposal is yet to be decided it appears that the Mozambique LNG
project is likely to end up at an operator where it fits in with the company’s core strategy.
The other area of potential impact for European OFS names is in the exploration and
development plans for offshore Anadarko assets (e.g. in the US Gulf of Mexico) that are at a
less advanced stage. However if the projects end up with Total SA, a more established offshore
player, then it will likely be a better strategic fit than Occidental, which has a much more
focussed US onshore business.
From a SPS/SURF supplier relationship point of view, historically TechnipFMC was the
traditional choice for Anadarko, with potential suitors Chevron and Occidental / Total handing
out work to a wider spread of OFS companies.
Our Rig Market Value
approach values SPM’s
offshore fleet at USD1.45bn
Whilst Anadarko’s US shale
assets are seen as the prize,
it does have also have
offshore and LNG assets
Mozambique LNG approval
may be delayed whilst
Chevron and Occidental
compete for Anadarko